Your student loan for sale

Will Hodges explores the government's proposals to privatise the Student Loans Company

Better the devil you know, as they say. The state-managed Student Loans Company has received a bad rap over the years, whether it be grumbling over "hidden" interest rate charges or "sneaky" taxes on employee bonuses. However nothing is quite so troubling as the news that the government has sold £900 million worth of student loans taken out between 1990-98 to a debt management consortium for £160 million - a fraction of their worth. Even more concerning for today's students is that this represents the first stage of a student loan sell-off that could see up to £45.6 billion of the loans sold to private bidders - which could make student loans almost impossible to repay.

Interesting problem

The sale, announced by Universities Minister David Willetts, is scheduled for 2015. It's expected to raise as much £10 billion for the UK Treasury in the short term as part of the coalition's efforts to offload £15 billion worth of public assets by 2020.

However, the current level of interest payable on student loans is too low to tempt most private investors. Students and graduates who began studying between 1998 and 2011 currently pay 1.5 per cent interest on their loans, while those starting after 2012 pay 3 per cent plus an inflation-linked figure. The government has therefore commissioned a private study, drawn up by investment bank Rothschild, to examine ways to make the student loan book more attractive to potential suitors.

One of the proposals is to raise interest rates on loans taken out by 3.6 million existing graduates whose periods of study date back to 1998, though Liberal Democrat Business Secretary Vince Cable has since ruled out this proposal as an option. The bank has also suggested that the government promises to protect companies against lower than expected interest rates by underwriting any shortfall in income - a process known as a synthetic hedge.

Political hot potato

The sale plans have been met with outrage from opposition ministers. 35 members of parliament signed a motion condemning the coalition's plans for privatisation, describing the venture as a "grave error".

Josiah Mortimer, spokesperson for the Young Greens, the Green Party's student chapter, told The Gateway that the coalition's plans for privatisation spell further pain for the UK's student population:

"Letting private companies rake as much profit as possible from students and graduates will only serve to heap more pain on already embattled generation," he said. "Since investors don't actually want to buy the Student Loans Company as it stands, the government is likely to 'sweeten up' the deal by raising the cap on interest rates - resulting in a retroactive hike in fees for millions of people."

Cautious on campus

Some student bodies have been slower to react, however. The National Union of Students (NUS), the largest student organisation in the UK, has been accused of turning a blind eye to the financial plight facing students. Ani Brooker, leader of Cambridge-based student activist group Cambridge Defend Education, maintains that the organisation has not done enough to draw attention to the situation: "There aren't emails being sent out, no-one is paying for a national poster campaign - things like that requiring a national infrastructure have been absent," she said.

The NUS itself claims to have received assurances from the government that a cap on interest rates will be introduced as part of the privatisation arrangement, although the pledge has not been officially written into the plans so far.

Other organisations have taken a more aggressive stance - on 20 November the Student Assembly Against Austerity led a national day of action across UK campuses in protest against the government's plans.

Economy class

The sale of the student loan book would represent another stage in the privatisation of the further education sector as the coalition looks to reduce its financial commitment to UK universities.

In 2011 the government slashed university funding by 12 per cent to coincide with the increase in tuition fees, meaning many universities have been forced to sell off assets in order to plug growing revenue shortfalls.

In London, UCL recently revealed plans to sell off £500 worth of property, including its medical centre. The university will also hand over the lease of three of its largest halls of residence to a private company.

While Downing Street has been widely criticised for downsizing its financing of the further education sector, some observers have pointed the finger at the coalition's predecessor: the Labour government.

Under the stewardship of Tony Blair, the party set an ambitious target of sending 50 per cent of young people to university, an initiative which saw admissions officers pressurised into boosting student numbers in return for increased funding.

Although levels of financing for higher education have been partly maintained through the recent rise in tuition fees, recent cuts to government further education budgets have left many universities facing an unsustainable legacy.

Figures show that 787,000 students graduated from universities in the UK in 2012, a 56 per cent increase on 2001 numbers while, according to the Office of National Statistics, the number of citizens with a degree rose from 17 per cent in 1992 to 38 per cent last year. The crux of the problem facing the sector is all to clear: too many students; not enough money.